IKEA SWOT Analysis

SWOT is an acronym for strengths, weaknesses, opportunities and threats related to organizations. SWOT analysis is a strategic tool that helps businesses to analyse internal and external factors affecting the bottom line. Strengths and weaknesses are internal factors that can be influenced by the company. Opportunities and threats, on the other hand, are external factors that have to be taken into account in strategic decision-making by the senior management.  The following table illustrates IKEA SWOT analysis:

Strengths

1.      Market leadership in the global scale

2.      Democratic design concept

3.      Competency in cost-cutting through product and process innovation

4.      Brand value and solid financial position

5.      Vast, yet focused product range

Weaknesses

1.      Weak presence in Asia

2.      Damaged reputation due to a series of incidents

3.      Competitive advantage difficult to sustain

4.      Lack of differentiation of IKEA products and services

5.      Lack of flexibility due to large size

Opportunities

1.      Increasing emphasis on CSR

2.      Increasing presence in developing countries

3.      Adding premium range of products into portfolio

4.      Strengthening cost leadership competitive advantage through technological innovation

Threats                                              

1.      Decline in demand due to increase in consumer income

2.      Unsustainability of ‘democratic design’ concept

3.      Emergence of competition from Asia

4.      Increasing costs of raw materials

5.      Global economic and financial crisis

IKEA SWOT analysis

Strengths in IKEA SWOT Analysis

1. IKEA is an undisputed market leader in the global market of home improvement and furnishing. The Swedish furniture chain has 422 stores in more than 50 markets and 19 new IKEA stores opened in 2018.[1] Additionally, the furniture retailer has 22 Pick-up and Order Points in 11 countries, 41 Shopping Centres in 15 countries and 38 Distribution sites in 18 countries.[2] The current leadership position of the company provides substantial advantages in terms of the economies of scale and at the same time creating a substantial entry barrier for new competitors.

2. IKEA has developed the notion of democratic design which implies achieving an attractive form, quality, function and sustainability at a low price. The company attempts to integrate this notion to all of its products. Consistently increasing revenues of the business is an indication of successful outcome of such attempts. IKEA employs more than 1,000 designers globally who operate under democratic design culture and implement the concept in practice on a daily basis. The home improvement and furnishing chain also organizes annual democratic design days to build upon its success with positive implications on the bottom line.

3. IKEA has been able to deliver attractively designed products at low costs thanks to its product innovation capabilities. Innovations by IKEA play an instrumental role in terms of achieving democratic design as discussed above. The company has an innovation lab dubbed Space 10 in Copenhagen which conducts a wide range of futuristic projects such as 3D-printed meatballs, urban farming, energy-harvesting furniture and air-improving windows.[3] The list of innovative products introduced by IKEA include, but not limited to Vava lamps made of leaves, adhesive-free furnishings, severed seat storage, building block kitchens, flat-pack funerals etc.

However, the most important innovation introduced by IKEA is a process innovation of selling furniture in the flat pack form. Specifically, the world’s largest furniture retailer pioneered the practice of selling furniture in flat pack forms, where assembly is done by customers following clear instructions and illustrations provided by the company. This process innovation can be specified as the biggest factor that enabled IKEA to offer its products at the lowest prices.

4. IKEA generated retail sales of EUR 38,8 billion during financial year 2018, has a healthy profit margin and strong cash reserves.[4] Thanks to its solid financial position, the company is able to commit to considerable R&D expenses to further strengthen its presence in the global marketplace. Moreover, IKEA’s financial strengths can play an important role of cushion in times of recessions and decline in demand. Furthermore, Interbrand and Forbes estimate IKEA brand value as USD 17,46 billion and USD 15,30 billion respectively. Strong brand value is a convincing indicator of a high level of customer loyalty and an overall strength of the business.

5. IKEA offers about 9500 products, yet apart from shopping centre business in Russia and food products, IKEA product portfolio is efficiently focused. Specifically, the company offers a wide range of furniture and home appliances products that share the common set of features such as innovative design, low price and a high level of practicality. Moreover, IKEA stays up-to-date with changes in customer needs and preferences. Highly focused pattern of IKEA product portfolio increases the effectiveness of brand identity with positive implications on consumer loyalty.

Weaknesses in IKEA SWOT Analysis

1. During FY2018 only 5% of global sales were generated in Asia and Australia region, at the same time when 80 per cent of sales were generated in Europe’s saturating market[5] (see figure below). Taking into account rapidly expanding economies of Asian region and prolonging economic stagnation in Europe, it can be argued that IKEA’s current weak presence in Asian market might weaken the share of the business in the global marketplace in medium-term perspective.

IKEA SWOT Analysis

 IKEA sales per region

2. IKEA brand image is yet to fully recover from a series of ethics-related incidents the company had to deal with in 2012 and 2013. The most controversial incidents include using Photoshop to alter the images of women in its Saudi Arabia catalogue in September 2012. Revelations by Ernst & Young in the same year that IKEA did have businesses with suppliers based in communist East Germany 30 years ago that used forced labour to produce IKEA products also considerably weakened the brand image.

Furthermore, in February 2013 IKEA had to recall its meatballs after it was found that some of them contained traces of horse meat.[6] More recently, the global furniture retailer has been accused of avoiding EUR 1 billion taxes according to a report the European parliament.[7] These and other similar incidents have weakened IKEA’s brand image to a considerable extent…

IKEA Group Report contains a full version of IKEA SWOT Analysis. The report illustrates the application of the major analytical strategic frameworks in business studies such as PESTEL, Porter’s Five Forces, Value Chain analysis, Ansoff Matrix and McKinsey 7S Model on IKEA. Moreover, the report contains analyses of IKEA leadership, organizational structure, business strategy and organizational culture. The report also comprises discussions of IKEA marketing strategy, ecosystem and addresses issues of corporate social responsibility.

IKEA-Group-Report

[1] IKEA Facts and Figures 2018 (2019) IKEA, Available at: https://www.ikea.com/ms/en_US/this-is-ikea/facts-and-figures/index.html

[2] Group Yearly Summary (2016) IKEA Group

[3] Le Pluart (2016) “IKEA Secret Innovation Lab” IKEA, Available at: http://www.ikea.com/ms/en_US/this-is-ikea/ikea-highlights/IKEA-secret-innovation-lab/index.html

[4] Sustainability Report FY 2018 (2019) IKEA

[5] Facts & Figures (2019) IKEA, Available at: https://www.ikea.com/ms/en_AU/about_ikea/facts_and_figures/

[6]Business Insider (2013) Available at: http://www.businessinsider.com/ikeas-reputation-has-taken-a-beating-2013

[7] Shen, L. (2016) “Ikea Has Been Accused of Avoiding 1 Billion Euros in Taxes” Fortune, Available at: http://fortune.com/2016/02/12/ikea-tax-avoidance/